Non-life insurers’ after tax profit declines

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Zimbabwe’s non-life insurers’ after-tax profit for the full year to December 2015 (FY15) declined by more than half compared to the same period in the prior financial year (FY14) due to rising claims and low returns from investments, a report says.

Bernard Mpofu

According to the Insurance and Pension Commission (Ipec) report on short-term insurance players, non-life insurers reported total gross premium written (GPW) amounting to US$214,71 million in (FY15) compared to GPW of US$208,02 million reported in FY14.

“Non-life insurers reported a 54,94% decrease in total profit after tax from US$10,25 million for the year ended 31 December 2014 to US$4,62 million for the year ended 31 December 2015. The decrease in total profit after tax was mainly attributable to an upsurge in net incurred claims as well as unrealised losses in investments which amounted to US$5,60 million and US$1,84 million respectively,” the report says.

“The increase in unrealised losses can be explained by the poor performance of the financial markets during the year under review. The industry average return on assets (ROA) and return on equity of (ROE) deteriorated from 5,73% and 13,16% for the year ended 31 December 2014 to 2,54% and 5,78% respectively, for the year under review.”

Insurance companies and pension funds have over the last two years been hard hit by the underperformance of the Zimbabwe Stock Exchange and the property business. The sector is heavily exposed to equities and properties. Nearly US$2 billion in shareholder value was lost year-on-year in the quarter to March compared to the same period last year as investors fret over indigenisation regulations compelling foreign investors to sell controlling 51% equity stakes to indigenous Zimbabweans.

During the period under review, the number of registered players, including insurance agents and loss assessors, increased from 597 as at September 30 2015 to 609 as at December 31 2015.

This increase resulted in the contribution of the non-life insurance industry to the country’s Gross Domestic Product increasing marginally as evidenced by the rise in the penetration ratio to 1,52% from 1,47%.

Turning to minimum capital requirements, which have since been increased to US$2,5 million from US$1,5 million, Ipec said as at December 31 2015, all the operating non-life insurance companies reported capital positions which were compliant with the minimum capital requirement of US$1,5 million.

“The asset base for direct non-life insurers increased by 12,17% from US$172,91 million as at 30 September 2015 to US$193,95 million as at 31 December 2015. The increase in total assets was mainly driven by an upsurge in premium debtors as well as growing investments in prescribed assets which amounted to US$9,29 million and US$6,51 million respectively,” the report says.

“The premium debtors were mainly accrued in tobacco insurance, which covers perils such as hail damage, where premiums are only collected in arrears at the end of the tobacco farming season. The increase in investments in prescribed assets resulted in the non-life insurance industry recording an industry average prescribed assets ratio of 7,25%.”

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